Wednesday, 13 January 2016

Greece’s central bank chief urged political parties to reach a swift consensus to wrap up a bailout review which will pave the way for long-awaited talks on debt relief.

International creditors have pencilled in Jan. 18 to start a review of reforms agreed under the latest bailout, Greece’s third since 2010. They aim to complete it in February, opening the door to negotiations on ways to reduce a debt burden about 1.8 times the size of annual Greek economic output.

The formal review, the first since the euro zone and Greece agreed on a third bailout package in August, will include painful changes to pensions and agricultural taxation.

“Parliament voted this deal with a huge majority. Therefore, I don’t see why we shouldn’t conclude the programme for the review now,” governor Yannis Stournaras told Greek Skai TV, defending his call for consensus as a “correct” warning.

“I don’t see why the (European Union and International Monetary Fund) lenders won’t attend the discussion for debt relief once the review is concluded. Steps have already been taken. I would be surprised if they didn’t.”

Policymakers have said debt relief could include giving Greece longer to repay bailout loans, whose average maturity is now about 32 years, some concessions on interest rates, and capping the cost of servicing the loans at 15 pct of gross domestic product (GDP).

Stournaras said it was a “mistake” that Athens and its lenders failed to conclude the final review of Greece’s previous bailout in November 2014, bringing forward a snap election that catapulted Tsipras to power and led to a standoff with lenders that put Greece’s euro zone membership at risk.

“We have covered the biggest part of the consolidation and it would be a pity, a real pity to go back, to return to November 2014,” he said.

The election of reformist Kyriakos Mitsotakis as conservative leader on Sunday sparked speculation that the lenders could toughen their stance in the review, viewing him as effective opposition to leftist Prime Minister Alexis Tsipras.

Mitsotakis is expected to pile pressure on Tsipras, who has a slim parliamentary majority and wants to increase social security contributions rather than cut pensions to secure his lawmakers’ support.

But Stournaras said higher social security contributions could do more economic damage than pension cuts. “We need to find the middle ground on this,” he said.

He ruled out a Greek exit from the euro zone and any “bail-in” of depositors to help banks.

A successful review would also speed up the lifting of capital controls imposed last June. Asked when that could happen, Stournaras replied:

“No one can say when with certainty. Having a positive review of the programme would act as a catalyst. If that happens I see (the lifting of controls) within the year.”

He said the controls had less impact than expected and estimated the economy would shrink by 0-0.5 percent in 2015, rather than the 2.5 percent previously forecast.

Greek Finance Minister Euclides Tsakalotos began touring European capitals on Friday to seek support and possibly discuss the IMF’s role in the latest, third bailout, officials have said.